February 2, 2022 - 9:28 am

GDP To Grow By 9.2% This Year & 8% To 8.5% In 2022-23.

    The Economic Survey for 2021-22, tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha, expects the GDP to grow by 9.2% this year and 8% to 8.5% in 2022-23. The Survey’s projections appear conservative when compared to recent assessments of the IMF, which has pegged the economy to grow at 9 per cent, or the World Bank which expects it to grow at 8.7 per cent. The Survey notes that India’s growth–inflation trade-off is becoming more favourable. Economic recovery has stabilised and is proceeding apace, while prices are expected to moderate in the months ahead. However, there are risks that will need to be addressed. The survey, presented a day before the Union Budget, underlines the state of the economy and outlines suggestions for policy actions.

    The Economic Survey assesses the health and status of the economy, and sets the stage for the Union Budget. First published in1950-51, the Survey was initially fewer than 50 pages long, and was part of Budget documents. It contained a brief outline of economic developments of the previous year. The Survey of 1957-58 had just 38 pages, and was primarily descriptive with not much analysis and policy prescriptions. An analytical chapter on the country's medium-term challenges and macro-economic prospects was added in 2008-09, following the global financial crisis of 2007-08. In 2013-14, the statistical appendix was published as a separate volume. In 2014-15 Survey was in two volumes : Vol 1 addressed topical policy concerns; Vol 2 was the traditional Survey along with the statistical appendix. The 2020-21 Survey “consisted of 335 pages in Volume 1, 368pages in Volume2 and a statistical appendix of 174 pages—a total of 877 pages !”. It allowed space for new ideas and themes, but was also “unwieldy”. This year’s Survey has been trimmed down to 413 pages.

    As the annual flagship document of the Ministry of Finance, it is disturbing that the Survey does not examine the uneven nature of the recovery in greater detail. The continuing distress in the labour market, the sharp rise in in equality, the lingering financial stress among the MSMEs, especially those operating in the informal parts of the economy, are issues that need to be explored more exhaustively. While the Survey has sought to assure that when it comes to macro-economic stability, India is better placed than it was at the time of the global financial crisis and the taper tantrum, what is less clear is the extent to which the recovery will heal the scars induced by the pandemic in the near term.

     “Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. The year ahead is also well poised for a pick-up in private sector investment with the financial system in a good position to provide support to the revival of the economy,” the Survey projected. The Survey’s GDP growth estimate for the coming year is based on the assumption that ‘there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl, and global supply chain disruptions will steadily ease over the course of the year’. The Survey acknowledged the risks that have emerged at the time it was being written, such as the new COVID-19 variant, Omicron, sweeping across the world, inflation jumping up in most countries, and the cycle of liquidity withdrawal being initiated by major central banks.

    The Survey has, once again, mounted a strong defence of the policy response to the pandemic, arguing in favour of the emphasis on supply-side oriented measures, rather than relying solely on “demand management”. Even so the underlying message is of continued government support to the economy. The “government has the fiscal capacity to maintain the support, and ramp up capital expenditure when required,” it says. The sharp rise in central government revenues provides it with the necessary fiscal space. However, considering that the general government debt stands at 89.3 per cent in 2021-22(BE), up from 74.6 per cent in 2019-20, the government needs to remain mindful of its constraints. The upcoming Union budget will be judged on how the finance minister balances the twin objectives of supporting the economy and putting government finances on a credible path of consolidation.